Question

Bitcoin and several rival forms of cryptocurrency experienced record-breaking growth in recent years, leaving many investors grappling with uncertainty and surprise during tax season. Cryptocurrency is digital currency that uses encryption techniques, rather than a central bank, to generate, exchange, and transfer units of currency. Unlike cash transactions, no bank or government authority verifies the transfer of funds. Instead, these virtual transactions are recorded in a digitized public ledger called a “blockchain.” Individual units of the currency are called “coins.” Unfortunately, since the technology is nascent, the IRS does not yet know how to the transactions should be treated for tax purposes. Assume you are a tax adviser to an individual engaged in cryptocurrency transactions. What tax law sources should you access in order to best determine the proper treatment of these transactions?

Answer 1